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Supporters of Honduras' ousted President Manuel Zelaya light a flame from bottles of spray paint as they pass in front of the Congress building during a march in Tegucigalpa July 2, 2009. REUTERS/Henry Romero

TEGUCIGALPA (Reuters) - The Organization of American States tried to convince Honduras on Friday to restore toppled President Manuel Zelaya or suffer a diplomatic sanction from the Western Hemisphere.

OAS head Jose Miguel Insulza arrived in Honduras to try to reverse the military coup last weekend that threw leftist Zelaya from office and sent him into exile. Insulza arrived at a Honduran air base on a Brazilian air force plane.

The OAS, backed by U.S. President Barack Obama and Latin American leaders, has given the interim rulers of Honduras until Saturday to bring back Zelaya or be suspended from the 34-member group.

Insulza was due to meet Honduran politicians, church leaders and judicial figures but stay away from talks with Roberto Micheletti, named by Congress as caretaker president, as the OAS wants to avoid giving his government legitimacy.

Insulza was cautious, telling reporters late on Thursday he doubted he could defuse the crisis in one visit.

"I cannot say I am confident," he told reporters in Guyana. "I will do everything I can but I think it is very hard to turn things around in a couple of days."

Thousands of Hondurans waving the blue and white national flag staged a boisterous anti-Zelaya demonstration near the presidential palace on Friday.

The new Honduran administration has so far rebuffed any attempt to bring back Zelaya, who was ousted in a dawn coup in a dispute over presidential term limits that has become Central America's biggest political crisis since the U.S. invasion of Panama in 1989.

The hitherto bloodless overthrow in the impoverished coffee and textile exporting country of 7 million people has created a test for regional diplomacy and for U.S. commitment to defending democracy in Latin America.

Micheletti says he does not want Zelaya to return and called on Friday on Insulza, a Chilean former foreign minister, to "be just, fair and realize that (the Honduran) people want peace, democracy and tranquility."

A grenade exploded outside a fast food restaurant near Tegucigalpa airport overnight, but no-one was injured and it was not clear if the attack was related to the political turmoil, police said.

CHAVEZ CONTACTS

Micheletti says he would agree to bring forward a November 29 presidential election to help solve the crisis.

World bodies and governments from Washington and Brussels to Zelaya's left-wing allies have condemned his ouster and demanded he be restored to power. His term ends in early 2010.

The United States has criticized the coup and will decide next week whether to cut economic aid to Honduras, one of the poorest countries in the Americas, but the Obama administration has let the OAS take the lead in trying to solve the crisis.

The OAS, which groups most countries in the Americas including the United States, is a mostly symbolic organization that promotes democracy but has limited powers.

The army ousted Zelaya last Sunday, accusing him of trying to expand presidential powers and being a puppet of Venezuela's firebrand socialist President Hugo Chavez.

Speaking from Venezuela, Chavez, who leads a group of leftist leaders opposed to U.S. influence in the region, said on Thursday he was in contact with people inside and outside Honduras over the crisis to help "avoid a bloodbath."

"We are in contact with people inside and in various parts of the world," said Chavez, a Cuba ally. "Of course one wants to do more but that country has its sovereignty and we have to respect it. We are not an interventionist country."

Zelaya had riled traditional political parties and business leaders with his growing alliance with Chavez.

The crisis has split Hondurans, with supporters of the coup holding rallies and pro-Zelaya demonstrators mounting rowdy protests, burning tires and building barricades, in recent days. Several dozen pro-Zelaya activists have been arrested.

The turmoil has not yet affected coffee supplies, although Central American neighbors staged a two-day trade blockade of Honduras to protest at the coup.

No foreign governments have so far imposed economic sanctions, and Micheletti's industry and commerce minister Benjamin Bogran told Reuters that an embargo would mainly hurt the country's poor.

(Additional reporting by Patrick Markey, Gustavo Palencia and Anahi Rama in Tegucigalpa, and Sharief Khan in Guyana; editing by Anthony Boadle)